33

34

those previously executed, if any of the deeds are subsequently declared void as in fraud of creditors, the proceeds of the property must be applied to the payment of the remaining valid incumbrances in the order of their priorities before any claims of unsecured creditors of the grantor can be paid. Where one holding mortgages based on loans made to take up prior mortgages on the property thereafter receives a conveyance of the property, which is held invalid, as in fraud of a creditor subsequently acquiring a judgment, the judgment is subject to the liens of the mortgages for the amount due thereon. Creditors with liens on property fraudulently conveyed, which had attached prior to the conveyance, are entitled to priority in the distribution of the fund arising from a sale of the property under the execution of a later creditor who was defrauded by the conveyance, 35 Where the owner of land incumbered with liens makes a conveyance fraudulent as against creditors, and the land is sold by the sheriff under a judgment subsequently obtained, the liens existing before the conveyance remain incumbrances upon the property, and are therefore not payable out of the proceeds of the sale.36 In an action by a judgment creditor to set aside as fraudulent conveyances of real estate by the debtor, the judg ments against him to recover installments of money are a lien on such real estate, but the court cannot declare other installments which had not been reduced to judgment a lien on such land. It is unnecessary to ascertain the liens existing upon the land before making a distribution of the proceeds of a sale of the land, and the party filing the bill and setting aside the conveyance is entitled to be first satisfied out of such proceeds, unless there are prior liens.38 Where a deed is made directly

37

33. Lewis v. Caperton, 8 Gratt. (Va.) 148.

34. Burne v. Partridge, 61 N. J. Eq. 434, 48 Atl. 770, citing Malloney v. Horan, 49 N. Y. 111, 121; Roberts v. Jackson, 1 Wend. (N. Y.) 478, 484.

35. Appeal of Byrod, 31 Pa. St.

241.

36. Appeal of Hoffman, 44 Pa. St. 95. 37. Carpenter v. Osborne, 102 N. Y. 552, 7 N. E. 823.

38. State v. Bowen, 38 W. Va. 91, 18 S. E. 375.

from husband to wife, and as a part of the consideration she agrees to pay certain debts which the husband owes and to secure which amount the vendor's lien is reserved, although the deed may be set aside as to general creditors as fraudulent, the liens thus reserved must be respected as liens on the equitable title conveyed as of the date of the record of said deed, if said claims were valid in other respects.

39

§ 16. Liens and priorities of creditors.-A creditor who during the lifetime of his debtor brings an action or files a suit to set aside as fraudulent a conveyance or transfer of property made by such debtor thereby acquires a lien on the property covered by such conveyance or transfer, and becomes entitled to a preference over all other creditors in the payment of his claim,40 unless it is other

39. Farmers' Bank v. Corder, 32 W. Va. 233, 9 S. E. 220.

40. N. Y.-Metcalf v. Del Valle, 64 Hun, 245, 19 N. Y. Supp. 16; In re Prime, 1 Barb. 296; McDonald v. McDonald, 17 N. Y. Supp. 230.

U. S.-Neal v. Foster, 36 Fed. 29; Johnston v. Straus, 26 Fed. 57; Kimberling v. Hartly, 1 Fed. 571, 1 McCrary, 136.

Ala.-Mathews v. Mobile Ins. Co., 75 Ala. 85; Battle v. Reid, 68 Ala. 149; Evans v. Welch, 63 Ala. 250, a creditor at large may thus acquire a superior lien.

Ark. Stix v. Chayton, 55 Ark. 116, 17 S. W. 707.

Del.-Newell v. Morgan, 2 Harr.

495; Tilford v. Burnham, 37 Ky. 109; Scott v. Coleman, 21 Ky. 73.

La.-Townsend v. Miller, 7 La. Ann. 632.

Mo.-George v. Williamson, 26 Mo. 190, 72 Am. Dec. 203. Compare City' of St. Louis v. O'Neill Lumber Co., 114 Mo. 74, 21 S. W. 484, the principle does not apply where the debtor simply absconds leaving visible assets in the hands of a city. Tex.-Cassaday

Tex. 527.

V. Anderson, 53

Va.-Noyes v. Carter (1895), 23 S. E. 1; Wallace v. Treakle, 27 Gratt. 479. See also Davis v. Bonning, 89 Va. 755, 17 S. E. 229.

W. Va.-Richardson v. Ralphsnyder, 40 W. Va. 15, 20 S. E. 854; Witz v. Lockridge, 39 W. Va. 463, 19 S. E. 876; Guggenheimer v. Lockridge, 39 W. Va. 457, 19 S. E. 874; Cohn v. Ward, 36 W. Va. 516, 15 S. E. 140; Clark v. Figgins, 31 W. Va. 156, 5 S. E. 643, 13 Am. St. Rep. 860; Sweeny v. Grape Sugar Co., 30 W. Va. 443, 4 S. E. 431, 8 Am. St. Rep. 88.

41

42

wise provided by statute," A creditor who brings an action to set aside a fraudulent transfer of property, made by the debtor before the appointment of a receiver of his property, thereby acquires a lien on the property and a preference over the receiver and all other creditors, and he cannot be deprived thereof by the bringing of a suit by the receiver for the same purpose. A junior judg ment creditor who succeeds in having a conveyance or transfer set aside obtains priority over senior judgment creditors.43 Cases wherein the question of the priority of the lien of creditors who have filed a bill to set aside a conveyance as fraudulent as against the lien of attachment creditors has been determined, and as to the enforcement of such a lien when provided by statute, are cited in the notes below.

44

45

17. Rights of grantee or purchaser as creditor.-Where a conveyance or transfer is made by a debtor without actual intent to defraud, or the grantee did not participate in the fraudulent intent, the grantee, being also a creditor, has a priority over other creditors on the distribution of the proceeds of the property;46 but where the grantee participated in the fraudulent intent, his rights

41. Stanton v. Keyes, 14 Ohio St. 443; First Nat. Bank v. Parsons, 42 W. Va. 137, 24 S. E. 554; Miner v. Lane, 87 Wis. 348, 57 N. W. 1105.

42. Metcalf v. Del Valle, 64 Hun, 245, 19 N. Y. Supp. 16.

43. Atwater v. American Exch. Nat. Bank, 152 Ill. 605, 38 N. E. 1017, rev'g 40 Ill. App. 501; Rappleya v. International Bank, 93 Ill. 396; Lyon v. Robbins, 46 Ill. 276; Boyle v. Maroney, 73 Iowa, 70, 35 N. W. 145, 5 Am. St. Rep. 657; Rappleye v. International Bank, 1 Ky. L. Rep. 71. Contra.-Jackson Holbrook, 36 Minn. 494, 32 N. W. 852. 1 Am. St. Rep. 683; Curlee v. Rembert, 37 S. C. 214, 15 S. E. 954; Cohn v. Ward, 36 W. Va. 516, 15 S. E. 140.

V.

44. Ala.-McDermott v. Eborn, 90 Ala. 258, 7 So. 751.

Ill.-McKinney v. Farmers' Nat. Bank, 104 Ill. 180.

La.-Lambert V. Saloy, 37 La.

Ann. 3.

Miss.-Levy v. Marx (1895), 18 So.

575.

Tenn.-Brooks v. Gibson, 75 Tenn.

271.

45. Citizens' Mut. Ins. Co. v. Ligon, 59 Miss. 305.

46. Brown v. Chubb, 135 N. Y. 174, 31 N. E. 1030, rev'g 8 N. Y. Supp. 61; First Nat. Bank v. Rhea, 155 Ill. 434, 40 N. E. 551, aff'g 53 Ill. App. 511; Fifield v. Gaston, 12 Iowa, 218; Wilson v. Curtis, 13 La. Ann. 601; Nadel v. Britton, 112 N. C. 188; 16 S. E. 915.

will be postponed to those of other creditors." Attaching creditors who attack a deed of trust executed by their debtor to secure certain creditors, and succeed in establishing the fictitious or fraudulent character of one of the claims so secured, are not thereby advanced to the place of the excluded claimant, so as to take priority over the bona fide creditors named in such deed.48 Where a mortgage is made for the security of several creditors, the claims of some of whom are invalid, the remaining creditors are entitled not only to the pro rata share which would have gone to them, respectively, if all the claims had been valid, but to their shares of the whole of the mortgaged property, up to the full amount of their respective claims.49 A surety who, in good faith, takes a mortgage for his indemnity, is regarded in equity as entitled to a bona fide purchaser's preference over a creditor whose judgment is subsequent to a fraudulent sale by the principal debtor.50

§ 18. Rights of creditors of grantee.--Where the proceeds of property fraudulently transferred have been brought into court at the instance of creditors of the assignor, the creditors of the assignee have no claim on the fund until after the creditors of the assignor have all been paid therefrom.51 Where a manufacturing corporation was organized and its business carried on for the purpose of defrauding the creditors of its president, a bona fide creditor of the corporation has no priority of lien on, or right to, the property of the corporation over a creditor of the president, and a purchaser at an execution sale, under an execution against the president, gets a good title as against the corporation.52 Where a merchant sold his stock to his son, who

47. Baldwin v. June, 68 Hun (N. Y.), 284, 22 N. Y. Supp. 852; Appeal of Nusbaum, 1 Pa. Cas. 109, 1 Atl. 392.

48. Woodson v. Carson, 135 Mo. 527, 35 S. W. 1005.

49. Tefft v. Stern, 73 Fed. 591, 43

U. S. App. 148, 21 C. C. A. 67.

50. Farmers' Nat. Bank v. Teeters, 31 Ohio St. 36.

51. Mullanphy Sav. Bank v. Lyle, 75 Tenn. 431.

52. Booth v. Bunce, 24 N. Y. 592, rev'g 35 Barb. 496.

continued the business, and brought fresh supplies on his own credit, and his father's creditors attacked the sale as fraudulent, and attached the stock, old and new, and the son's creditors levied executions on the blended stock, the articles purchased by the son after taking possession of his father's stock were the property of the son and subject to the executions against him.53

§ 19. Application of payments to judgment or execution. Although, on a settlement in an action by a judgment creditor against the grantee of the judgment debtor to reach property alleged to have been fraudulently conveyed, the money paid by defendant is not specially applied to the debt or otherwise, it should be applied upon and deducted from the judgment, since the object of the action was to obtain payment of the judgment.54

20. Right to surplus.-Where property is conveyed or transferred for the purpose of defrauding creditors and a sale of the granted premises is ordered in a suit brought to set aside the conveyance, any surplus of the proceeds thereof remaining after satisfying the demand and costs of the grantor's creditors, belongs to the grantee, since, as to all parties not assailing the conveyance, it is valid.55 The rule applies to a deed of gift fraudulent as against creditors,56 and to a sale by an administrator of land under order of the court to pay debts of his intestate, after recovering the real estate by a writ of entry from one to whom the intestate conveyed it in fraud of his creditors, but for a valuable consideration.57

53. Carter v. Carpenter, 70 Ky. 257.

54. Kittel v. Jones, 11 St. Rep. (N. Y.) 541.

55. N. Y.-Wood v. Hunt, 38 Barb. 302; Welch v. Tobias, 7 St. Rep. (N. Y.) 297.

U. S.-Lee v. Hollister, 5 Fed. 752.

Cal.-Emmons v. Barton, 109 Cal. 662, 42 Pac. 303.

Iowa.-Mallow V. Walker, 115 Iowa, 238, 88 N. W. 452, 91 Am. St. Rep. 158.

47.

56. Williams v. Avent, 40 N. C.

57. Allen v. Trustees of Ashley School Fund, 102 Mass. 262.